Method of managing financial instruments, equipment lease derivatives and other collateral instruments, data architecture, application and process program

ABSTRACT

A computer-implemented process ad methodology that selects collateral instruments such as equipment leases, using mathematical models, based on selection criteria, risk-reward relationships, and maturity needs resulting in the creation of new financial instrument derivatives. These new derivatives allow for creation of secured private equity, public equity, mutual funds and venture capital funds where the investors&#39; principal is safeguarded against loss regardless of the performance of the investments being made. A two-tier investment structure is created whereby the principal amounts from the fund are invested in specially identified high yield vehicles such as residual equipment leases with high yields over certain maturities. The high yield cash flow only is then invested in higher risk investments such as venture capital start-ups companies.

[0001] The present application claims priority from U.S. Application No.60/299,367 filed Jun. 19, 2001.

BACKGROUND OF THE INVENTION

[0002] This invention relates generally to financial instruments. Moreparticularly, this invention relates to a method andcomputer-implemented process for creating lease backed financialinstrument derivatives yielding higher than market returns.

[0003] Investment vehicles such as venture capital funds have certainrisks. Venture Capital generally refers to the business of financing newbusiness undertakings, usually high risk, in the hopes of reaping largerewards if the new business is successful. In a typical scenario, aninventor or group with a new idea will ask a venture capital fund togive them money to start a business built around the new idea. Thefinancial return of the venture capital fund may be large, or in manycases the investment can be a total loss.

[0004] Due to the high-risk high-reward nature of such investments, theamount of investment capital available to fund such investments is verylimited as investors are concerned about losing their investment. Thisnew methodology is directed at solving the problem so investors can puttheir principal into higher risk investments like venture capital butknow that their principal investment has been secured. This method,would minimize the risk of losses in failed businesses, and would permitinvestors to continue to finance worthy enterprises without concernabout the security of their original principal.

[0005] As an example, consider a typical Venture Capital fund with a 10year life that has raised $100 million to invest in start-up companies.Out of this funds, 2.5% per year for 10 years or $25 million goes formanagement fees and is not invested, and another 10% is then set asidefor reserves, leaving 65% or $65 million that is actually invested instart-up companies. If this $65 million is invested over 5 years, itresults in $13 million or 13% per year of the starting capital beinginvested over 5 years. Now, if the fund does well and averages 5 timesreturn on invested capital, the $100 million fund can generate a 10 yearreturn of $13 million×5 years×5 times=$325 million. However, if the funddoes badly as in the case of several funds that invested in Internetstart-ups, the investors can lose the entire $100 million resulting in a100% loss.

[0006] With the secured fund methodology according to the presentinvention we take a different approach. From the $100 million in thefund, 10% also goes into a reserve but the balance $90 million is firstinvested into equipment leases yielding 15% per year or $13.5million/year. From this, $2.5 million/year is again paid as managementfees and the balance of $11.0 million/year is invested over 10 years.Now, if the fund does well and generates the same five times return oninvested capital as the conventional Venture Capital fund, the cash flowinvested would generate a return of $11 million×10 years×5 times=$550million. In addition, in the 10th year, the investors get back theirinvestment of $100 million as the leases mature regardless of theperformance of the invested cash flow.

[0007] So in the first case if the fund does well, with the same $100million invested in a Venture Capital fund, with the conventional fundthe investors would receive back $325 million versus $650 million forthe secured fund according to the present invention. This is double thecash return that the conventional fund offers.

[0008] However, if the fund does badly and all the investments are lost,in the worst case the conventional fund investors get back nothing.However, with the secured fund model, the investors still get theirprincipal back as the leases mature in the 10th year.

[0009] This is why this new two-tier investment structure according tothe present invention is so attractive. It essentially enables investorsto get high returns in capital investments without the high riskassociated with conventional investments available today.

[0010] Even if an investor puts money in an investment vehicle such asprivate equity fund, stock mutual fund or an individual stock, theinvestor runs the risk of loss of principal since the principal is notsecured. If the fund goes down in value, the investor loses money andcan lose the entire principal. As a result many investors have sufferedhuge losses in mutual funds and stock investments in the recent fall ofthe NASDAQ from over 5,000 to under 1,600.

[0011] The present invention is directed at solving the problem ofsecuring the investors capital so that an investor can make money whenthe stock goes up and secures the return of principal if the stock goesdown. An investor in a secured mutual fund using this two tier approachreceives their principal back even if the NASDAQ drops in price becausetheir principal is not at risk.

[0012] Furthermore, investors are finding that yields on safe fixedincome investments are very low. Bank CD's are yielding 2-3% per year.investment grade bonds are yielding 2-16% per year and US governmentTreasuries are yielding 2-5% per year.

[0013] This invention is further directed at solving the problem ofallowing investors to obtain yields that are 15% per year or higher andsecured by investment grade collateral.

[0014] Many start-up businesses have received millions of dollars ofinvestor capital that has been spent on starting the business with norevenue coming in. This appears as a net operating loss on the balancesheet of the company but has little value to the start-up until itbecomes profitable.

[0015] The present invention is further directed at solving the problemof being able to use these losses as an asset by the start-up company.

[0016] In theory the concept of a two-tier investment structure is notnew. An investor can take-their money, put it into corporate bonds witha 10-year life, get a 5% return and invest the interest earned inventure capital or stocks. The problem is that this conventional returnon capital on A, AA or AAA rated corporate bonds is still around 3-5%giving little cash returns for investment as a two-tier structure.Hence, the two-tier structure cannot work in today's environment due tothe low returns. Yet if the investor tries to get higher returns andputs the capital directly into venture capital or stock as is being doneat present, there is the risk of loss of capital. In fact, investorshave lost billions of dollars seeking high returns while the NASDAQ hasfallen from over 5,000 to under 1,600 today. Using the methodologyproposed here could have saved these companies billions of dollars.

[0017] The reason that no one has used equipment leases before, as partof a two-tier investment structure, is because of problems in findinghigh yielding value in the marketplace. Furthermore, there is no NASDAQtype exchange for equipment leases as there is for stocks or bonds, dueto the lack of uniform evaluation methodology and exchange typemechanism to trade equipment leases. New equipment leases typicallyyield only 4% to 8% per year rates of return. The average length of alease is typically 1 to 50 years depending upon the type of equipmentfrom cars through railcars, aircraft and barges. Hence, using equipmentleases does not seem to be an obvious solution to this problem.

[0018] It does become a solution when one analyzes equipment leases ingreat detail and break them up into their derivative elements. Theopportunity is created when one becomes aware that the fair market valueof the leased equipment decreases over time at different rates dependingupon the type of equipment but the lease payments typically remain fixedor decline at different intervals over the length of the lease. As aresult, if these residual leases, which may be several years old, arepurchased in the secondary market and held for a predetermined optimumtime period taking the lease payments, fair market values at the time ofpurchase and sale and other related facts into consideration, then it ispossible to use these residual leases to create lease derivatives toobtain cash flows yielding 15% per year or higher.

[0019] Furthermore, the mathematical models being used can be applieduniformly through numerous categories of leases and the evaluationcriteria and formulas used to establish rates of return for evaluatingleases can also be used as the fundamental mechanism for a NASDAQ typetrading-exchange in which buyers and sellers can trade equipment leases.

[0020] Due to the complexity of evaluating hundreds and thousands ofleases to determine specific leases to be bought and sold, establishingbuying and selling parameters, and then using these derivatives toconstruct a portfolio, we have proposed our new algorithm andmethodology to be computer implemented.

SUMMARY OF THE INVENTION

[0021] It is an object of the present invention to provide a method andan apparatus for selecting lease backed financial instrument derivativesyielding higher than market returns.

[0022] It is another object of the present invention to use the selectedleases to form a two tier investment structure.

[0023] It is a further object of the present invention to apply the twotier investment structure to a venture capital environment.

[0024] It is a further object of the present invention to apply the twotier investment structure to a private and/or public equity environmentincluding stock mutual funds.

[0025] It is a further object of the present invention to apply the twotier investment structure to a debt instrument environment includingbond funds.

[0026] It is a further object of the present invention to use theuniform evaluation methodology and basic mathematical formulas andalgorithms in this patent to create a NASDAQ type trading exchange totrade equipment leases as there is for stock trading.

[0027] It is a further object of the present invention to apply the twotier investment structure to create new financial instrument derivativesfor securing investments in venture capital, private equity, mutualfunds and other types of funds through the use of a computer system thatembodies the process.

[0028] These and other objects of the present invention will becomeapparent to those skilled in the art upon the following description ofthe invention.

[0029] According to one aspect of the present invention a method forselecting leases to optimize an investment portfolio is providedincluding the steps of receiving data concerning an equipment purchaseprice, an equipment sale price, a number of units, a lease purchaseprice, a life of lease, a lease acquisition fee, an accelerateddepreciation of change, and a yearly payment; calculating a totalpurchase price by adding the lease purchase price to the leaseacquisition fee; calculating an accelerated depreciation result bymultiplying the individual purchase price by the number of units;calculating a rate of return by subtracting from the yearly payment thetotal purchase price and the accelerated depreciation result anddividing by the lease purchase price; and selecting a lease based on therate of return being greater or equal to a predetermined value.

[0030] According to another aspect of the present invention an apparatusfor facilitating a selection of leases to optimize an investmentportfolio is provided including a storage device; and a processorconnected to the storage device, the storage device storing a programfor controlling the processor, wherein the processor operates with theprogram for receiving data concerning an equipment purchase price, anequipment sale price, a number of units, a lease purchase price, a lifeof lease, a lease acquisition fee, an accelerated depreciation ofchange, and a yearly payment; calculating a total purchase price byadding the lease purchase price to the lease acquisition fee;calculating an accelerated depreciation result by multiplying theindividual purchase price by the number of units; calculating a rate ofreturn by subtracting from the yearly payment the total purchase priceand the accelerated depreciation result and dividing by the leasepurchase price; and selecting a lease based on the rate of return beinggreater or equal to a predetermined value.

BRIEF DESCRIPTION OF THE DRAWINGS

[0031]FIG. 1 is a block diagram illustrating the overall computer systemused in the present invention;

[0032]FIG. 2 is a dataflow diagram illustrating the core processes,inputs, and outputs of the processes in accordance with the principlesof the invention organized and applied within the computer systemcomponents;

[0033]FIG. 3 is a dataflow diagram illustrating the acquisition process,its inputs, and outputs;

[0034]FIG. 4 is a flowchart illustrating the collection of the requiredformula variables provided typically by a broker, for example, used asinput to the algorithms necessary to analyze, identify, and select theleases meeting the criteria for acquisition in accordance with theprinciples of the invention;

[0035]FIG. 5 is a flowchart illustrating the collection of informationsupplied by a buyer, for example, which states the buyer's desire forspecific criteria to be meant in selecting the types of leases to beconsidered for acquisition;

[0036]FIG. 6 is a flowchart illustrating the required steps in theformula to obtain the necessary values to select candidate leaseinstruments;

[0037]FIG. 7 is a flowchart illustrating the required steps to establishthe variables necessary to formulate optimal time periods fordetermining lease payments, fair market values and their rates of returnby creating dynamic tables to store the calculated results of theformulas;

[0038]FIG. 8 is a flowchart illustrating the steps for selecting acollateral instrument using the data collected;

[0039]FIG. 9 is a flowchart illustrating the default steps fordetermining whether a collateral instrument meets the length of leaserequirement set forth in accordance with the principles of theinvention; and

[0040]FIG. 10 is a flowchart illustrating the selection optimizationprocess which either uses the buyers input variables or the defaulttables according to the present invention to generate the deal sheet,which represents an offer to establish a portfolio or to add to anexisting portfolio.

DETAILED DESCRIPTION OF THE INVENTION

[0041] The present invention is a business method process which createsderivative investment vehicles from residual equipment leases and othercollateral instruments by means of an agent data application andprocessing program which breaks down the leases into derivatives stripsof principal and income in tandem with given investment and businessvariables. These derivatives can then be used to create secured venturecapital, private equity, public equity and debt instrument funds wherethe investors may obtain above market yields with up to 100% security oftheir invested capital.

[0042] The following variables will be used in the description of thepresent invention and are defined herein:

[0043] EPP=Individual Equipment Purchase Price ($)**

[0044] EEPP=Individual Equipment Sale Price**

[0045] NU=Number of Units**

[0046] LPP=Lease Purchase Price ($)**

[0047] TP=Table Pointer (based on 1 to Length of Lease)

[0048] YP (TP)=Yearly Payment**

[0049] LLM=Life of Lease in Months**

[0050] LMFD %=Lease Management Fees (%)**

[0051] LAF$=Lease Acquisition Fees ($)**

[0052] LAFD %=Default Lease Acquisition Fee (%)**

[0053] AD %=Accelerated Depreciation % of Change

[0054] GI=Investment Grade Rating of lease owner**

[0055] TE=Type of equipment being leased**

[0056] TI=Type of investment vehicle, for example, Venture capital,Private equity, public equity or debt instrument**

[0057] ** These formula variables are usually provided by a Broker orlease seller.

[0058] MRR %=Minimum Rate of Return***

[0059] MGI=Minimum Grade of Investment***

[0060] MLOL=Minimum Length of Lease***

[0061] PTE=Preferred Type of Equipment***

[0062] ALP$=Amount of Leases to Purchase***

[0063] *** These variables are optional and are usually provided by theBuyer for the selection of a lease. If the variables are not provided,the present invention uses default tables to select the leases.

[0064] TPP=Total Purchase Price

[0065] FMVE=Fair Market Value at End of Lease

[0066] REOL=Residual at End of Lease

[0067] LOL=Length of lease in years

[0068] SLD=Straight Line Depreciation

[0069] LAF %=Lease Acquisition Fees (%)

[0070] ACFY=Annual Pretax Cash Flow Yield

[0071] PPM=Payments Per Month

[0072] PPY=Payments Per year

[0073] FMVS (TP)=Straight Line Depredation Results

[0074] FMVA (TP)=Accelerated Depreciation Results

[0075] RR (TP)=Rate of return per year for different Lengths of Lease todetermine best holding period for leases being considered for purchasedto maximize rate of return percentage.

[0076] RRT=Rate of Return Total is an accumulator for all yearscalculated by the RR(TP) formula. For each year calculated the resultsare added to this variable.

[0077] RRA=Rate of Return Average for all years calculated.

[0078] The present invention describes a unique business method andcomputer-implemented process to achieve the above-noted secured typeInvestment objectives.

[0079] The method works as follows. Instead of making a directinvestment into a business seeking capital, the investor engages in atwo-tier investment strategy by first using the principal to acquire orfinance acquisition by a buyer or fund of collateral such as anequipment lease.

[0080] Further, the investor invests or acquires rights in seasonedcollateral instruments at a discount. The collateral instrument can beequipment leases, bonds, Treasury bills, preferred stock, asset backedsecurities, securities credit card debt, mortgages—essentially anyfinancial instrument that has both principal and interest componentswith low risk and high cash flow. After acquiring this low riskcollateral the cash flow and/or interest from the collateral instrumentis then invested in the start-up businesses or a fund by means of loanand/or equity investment. The principal of the collateral acquired isnot invested in the business and remains secure. If the investor assignsits rights to the collateral, it finances the purchase of the collateralby the business which becomes the owner of the collateral and whichrepays the loan and interest and retains any excess collateral incomefor its capital needs.

[0081] In theory, investors can achieve similar results by usingexisting techniques such as investing their principal and in real estatesuch as an apartment building and then using the rent from the realestate transaction to invest in venture capital. In practice, this doesnot work because the rent payments from real estate are usually barelyenough to pay the operating costs of the building leaving little or nocash flow available for investment. This is also the case for most wellknown high yield debt investments like 10 year US Government Treasurybills that are yielding only 4-5% per year.

[0082] Our research has shown that it is virtually impossible forinvestors to obtain yields over market rates currently at 4-6% per yearwith their principal being secured by investment grade paper.

[0083] The present invention provides the unique ability to identify,select and analyze existing financial instruments, subject them to thenovel mathematical models described herein, and using various criteria,mix, match, assess and combine with other securities to come forth witha new derivative financial instrument. This process requires searchingand matching through thousands of instruments, hence requiring thebenefit of a computer implemented process.

[0084] As an example, the equipment-leasing marketplace in the US is$280 billion/year. This represents millions of leases yearly. Most newlease paper yields about 2-7% per year and many leases are offered forsale and resale. There is no NASDAQ type exchange for leases in the USand brokers typically offer leases to investors on a piecemeal basis, asevery lease is different. The method according to the present inventionallows the user to enter all the Information about the leases into thedatabase, assess it against the criteria using the predefined Formulasto help identify, select and acquire the appropriate leases to go intothe derivatives, which would then be structured. The selectionmethodology and computer program can further be extended to create anequipment lease exchange similar to the NASDAQ.

[0085] For example, 2,000 different leases a week for sale can bereceived by 10 brokers from 2000 individual owners and businesses withvarying fair market values at the end of the lease term. This canconsist of 700 different car leases with 1 to 4 year lives yielding 2-7%per year, 300 aircraft leases with 2 to 20 year lives yielding 3-15% peryear, and 1,000 railcar leases with 0 to 50 year lives with payments of$600 per month per car with unknown yields. The process will take allthis information, enter it into the database, apply the formulas,analyze it and provide selections for acquisition. The results may be toacquire 15 residual railcar leases in which the equipment is owned by,an AA investment grade company, which are 20 years old with a 50 yearlife, on which the fair market value today is $30,000 per car and holdthem for a maximum of ten years with a projected resale value of $27,000per railcar and a resultant lease yield of 17.3% per year over the lifeof the holding period.

[0086] These leases may then be combined with hundreds of other leasesto create financial instrument derivatives forming the basis of a new$100 million secured venture capital fund, for example, with a cash flowavailable for investment of 15% per year or $15.0 million. The fundwould then invest only the cash flow from these leases in start-upsusing various criteria so that even if the start-up is lost, theinvestor's principal is secured by the underlying railcar leases andequipment and is repaid at the maturity of the leases.

[0087] The cash flow from the collateral instrument is treated asincome, not equity, for the business, enhancing a start-up business'financial statement. Hence the structure is of particular benefit forcompanies with accrued net operating losses.

[0088] The graphic below illustrates typical changes in fair marketvalues for equipment leases. FMV1 represents the purchase price of theequipment at the start of the lease. Year A represents the year when thelease is offered for sale by the buyer at FMVA$ with the remaining lifeof 30 years. The mathematical algorithm according to the presentinvention checks different holding periods and finds the best time tobuy, hold, and sell the lease to maximize the rate of return.

[0089] The present invention creates new financial instrumentderivatives for securing investments in venture capital, private equity,mutual funds and other types of funds through the use of a computersystem that embodies a process of and method for acquisition, contractclosing, contract administration and liquidation which includestargeting of financial instruments and depreciated collateralderivatives. It includes the data architecture, application, processes,and methodology for acquiring, managing and distributing the financialinstruments.

[0090] It creates derivative investment vehicles from collateral basedupon defined criteria for mitigating risks (tax, structure, operator,collateral, residual values) by means of an agent data application andgroup of processing programs which breaks down the collateral intoderivatives strips of principal and income in tandem with giveninvestment and business variables.

[0091] It creates the process whereby financing can specifically beprovided to business borrowers whose balance sheets have net operatinglosses or any risk prone investment using the identification, analysisand selection methodology and process to acquire collateral instrumentsto support the risk.

[0092] The method according to the present invention is used to providea secured investment vehicle to organizations investing in private orpublic companies or any high-risk venture.

[0093] The present invention is now described more fully hereinafterwith reference to the accompanying drawings, in which preferredembodiments of the invention are shown. This invention may, however, beembodied in many different forms and should not be construed as limitedto the embodiments set forth herein rather, these embodiments areprovided so that this disclosure will be thorough and complete, and willfully convey the scope of the invention to those skilled in the art.Each drawn object contains numbers to assist with the explanations ofthe workflow and like elements throughout.

[0094] The system architecture of a first embodiment of the apparatusand method of the present invention is illustrated with reference toFIGS. 1 through 3. As shown in FIG. 1, the apparatus of the presentinvention comprises data sources 110, interface unit 120, memory 130,control processor 140, Inquiry request unit 150, storage medium 160,visual display device 170, and hardcopy device 180 (collectivelyreferred as “physical hardware components”).

[0095] Using the above components, the present invention provides amethod and apparatus to collect data from internal and external sources,which are required for submission to the acquisition decision process,and then used to identify potential investment candidates.

[0096] A conventional personal computer or computer workstation withsufficient memory and processing capability may be used as the dataprocessor 140. The data processor 140 must be capable of high volumetransaction processing, performing a significant number of mathematicalcalculations in processing communications and database searches. Thisprocessor can have a 32-bit architecture, for example.

[0097] Now turning to FIG. 2, the Core Process Inputs & Outputs aredescribed. The acquisition processor 220 comprises two sub-componentssupporting the transfer and storage of data, calculation for theselection process, risk evaluation and selection optimizer attendant tothe method according to the present invention. The acquisition processor220 will support various types of data entry vehicles, such as web-basedmanual entry, local manual entry and a digital file entry. Theacquisition processor will collect the data from lease sources 210, asshown in detail in FIG. 4, and the fund sources 240, as shown in detailin FIG. 10, apply the formulas to the collected data, store the data inthe deal database 250 and produce deal sheets 230 representing leasesmeeting either a default selection criteria or a buyer entered selectioncriteria, as shown in detail in FIG. 10, which is passed along to fundmanagement organizations 240 using the deal sheets 230.

[0098]FIG. 3 represents the two sub-components of the acquisitionprocessor 220 of in FIG. 2. The deal filter 320, which collects thedata, stores the data and applies the formulas to set up the selectionprocess, and risk mitigation 350, which uses the default Tables 1, or 2,or 3, or 4, and 5 to complete the selection process or the buyer enteredvariables, as shown in FIG. 10, to produce a deal sheet 370. The defaultTables 1-4 are presented below.

[0099] The lease sources 310 are the same as the lease sources 210 shownin FIG. 2, the deal database 340 is the same as the deal database 250 ofFIG. 2, the funds 380 and 390 are the same as the fund 240 of FIG. 2,and the deal sheets 370 are the same as the deal sheets 230 of FIG. 2.The user agent 360 is the buyer, as described in detail in FIG. 10.

[0100] The data is input through the interface unit 120 of FIG. 1. In anexemplary embodiment it is a conventional personal computer having aninput device, such as a keyboard, mouse, or conventional voicerecognition software package, a display device, such as a video monitor,a processing device such as a CPU, and a network interface such as amodem. These devices interface with the control processor 140 of FIG. 1.Alternatively, the lease source 310 may also be voice mail systems, orother electronic or voice communications systems. Devices such as faxmachines or pagers are also suitable interface devices.

[0101] The data storage medium 160 of FIG. 1 is a conventionalmagnetic-based hard disk storage unit, for example, such as thosemanufactured by various peripheral companies. It will contain the dealdatabase 340, which stores the values of Tables 1, 2, 3, 4, and 5 shownbelow along with other values that define the data sources, the formulaalgorithms, descriptions of the equipment, terms of the deals andclients licensed to use the invention.

[0102] The variables to be used by the novel formula according to thepresent invention were defined above and include information about theequipment, such as, individual equipment price, end of lease equipmentpurchase price, numbers of units, the lease purchase price, life oflease in months, default lease acquisition fees percentage, leaseacquisition fee dollar amounts, accelerated depreciation percentage ofchange, and tables containing yearly payments, which represent rentalincome, type of instrument, type of equipment, grade of investment,minimum rate of return, minimum grade of investment, minimum length oflease, preferred type of equipment and amount of lease to purchase.

[0103] The above mentioned data specific to the formulas is the core ofthe data needed to perform the selection process, however, thesupporting data that identifies the sources, identifying characteristicsof the deal and terms is collected and stored by the computerapplication system supporting the invention.

[0104] The collection of core variables is illustrated in FIG. 4. Thisvariables are typically entered or provided by a lease broker, FIG. 4includes the following steps: obtain and store the EPP variable, whichrepresents the individual equipment purchase price, step 410; the EEPPvariable, which represents the end of lease individual equipmentpurchase price, step 415; the NU variable, which represents the numberof units, step 420; the LPP variable, which represents lease purchaseprice, step 425; the LLM variable, which represents the life of thelease stated in months, step 430; the LOL variable which represents thelength of lease is calculated by dividing the life of the lease statedin months, the LLM variable, by 12, step 435; the LAFD % variable whichis the default lease acquisition fees stated as a percentage, step 440;the LAF$ variable which represents the lease acquisition fees stated indollars, step 445; the TE variable which represent the type ofequipment, 450, and the AD % variable which represents the accelerateddepreciation percentage, step 455.

[0105] The following data is collected and stored using a dynamic table,which allows the creation of a table using the length of lease variable,LOL, as the parameter to define the number of entries to the table, andonce defined, using a table pointer, the TP variable as a counter todetermine which yearly payment YP variable cell in the table the datawill be entered into. In step 460, the dynamic table pointer, (TP) isset to 1, which represents the first entry in the table, in step 465,the table pointer, (TP) is compared to the length of the lease, LOLvariable to determined whether the dynamic table has reached its limit,when the dynamic table reaches its limit, the process will be divertedto branch to the collect buyer entry variables, step 480. If the dynamictable pointer, (TP) has not reached its limit, the broker enters thefirst years payment YP(TP), step 470, one is added to the dynamic tablepointer, (TP), step 475 and the process branches back to the tablepointer and length of lease compare step 465 until all entries arecompleted.

[0106] These variables are presented through various presentationmediums, such as, a web-based form, an application program form or afile-processing program. The same logic will apply no matter in whichmedium the data is collected.

[0107]FIG. 5 represents the data to be collected from a buyer, forexample. The buyer may or may not exist or the buyer may wish to use thedefault variables for the selection process. Step 510 checks to seewhether a buyer exists or not. If a buyer does not exist, the processbranches to the deal selection calculations defined in step 520 shown indetail in FIG. 6.

[0108] If a buyer does exist, the process allows data specific to thebuyer's lease selection criteria to be collected, such as, the minimumrate of return variable MRR % in step 530; the minimum grade ofinvestment variable MGI in step 540, the minimum length of leasevariable MLOL in step 550; the preferred type of equipment variable PTEin step 560; the amount of lease to be purchased variable ALP$ in step570; and then branches to the deal selection calculations, in step 580.

[0109] The buyer does not have to complete all entries, any combinationof data can be entered. When the process encounters empty variables, thedefault values will be used in place of the buyer variables. Forexample, if the buyer does not enter minimum rate of return, the presentinvention will select the highest rate of return that is calculated bythe calculated rate of return process.

[0110] The data collection steps in FIG. 4 are used to apply the dealselection formula in FIG. 6, which illustrates the required steps forderiving the rate of return variable according to the present inventionand according to the present invention and used as input to the riskmitigation process, 350 of FIG. 3. The TPP variable represents the totalpurchase price and is calculated by adding lease purchase price, LPP,and the lease acquisition fees in dollars LAF$, step 610.

[0111] The FMVE variable represents the fair market value at the end oflease and is calculated by multiplying the end of lease equipmentpurchase price, EEPP, by the number of units, NU, step 615.

[0112] The REOL variable represents the residual at the end of lease andis calculated by first multiplying the end of lease equipment purchaseprice, EEPP, by the number of units, NU, and then subtracting theaccelerated depreciation percent of change, AD %, from 100 and using theresults to multiply by the first calculations results, step 620.

[0113] The next step, 625, calculates the straight line depreciationamount, SLD, by subtracting the fair market value at end of lease, FMVE,from the total purchase price, TPP and then dividing the results by thelength of lease, LOL.

[0114] The next step, 630, calculates the lease acquisition feespercentage, LAF %, by first multiplying the individual equipmentpurchase price, EPP, by the number of units, NU, and dividing theresults by the individual equipment purchase price dollars, LAF$.

[0115] The ACFY variable represents the annual pretax cash flow yieldand is calculated by first adding all of the yearly payments YP in thedynamic table, storing the information using the table pointer, TP, topoint to the next element to be added and then dividing the results bythe length of lease, LOL and then dividing that result by the totalpurchase price, TPP, in step 635.

[0116] The next step, 640 calculates the payment per month, PPM bydividing the first yearly payment by 12. This is for informationalpurposes and is stored as data. The yearly payments are stored in adynamic table, accessed by the dynamic table pointer, TP. The tablepointer is not used to access to first entry in the table, but rather ahard coded 1 is used in its' place. This process can be altered toaccumulate all of the yearly payments and average them based on thelength of lease.

[0117] The next step, 645 calculates the payments per year, PPY bymultiplying the first yearly payment by 12. This is done as a defaultwhen the broker enters only one payment per year. This is also used as adefault. Once this step is completed, step 650 will branch to calculatethe rate of return.

[0118] Now turning to FIG. 7, calculating the rate of return involvesestablishing a dynamic table containing the straight-line depreciation,accelerated depreciation and the rate of return.

[0119] The above mentioned data will be collected and stored using adynamic table, which allows the creation of a table using the length oflease variable, LOL, as the parameter to define the number of entries tothe table, and once defined, using a table pointer, the TP variable as acounter to determine which cell in the table will contain the calculatedentry. In step 705, the dynamic table pointer, (TP) is set to 1, whichrepresents the first entry in the table, in step 710, the table pointer,(TP) is compared to the length of the lease, LOL variable to determinedwhether the dynamic table has reached its' limit. When the dynamic tablereaches its limit, the process will calculate the Rate of Return Averagein step 715, and then be diverted to branch to the acquisitionsselection process, shown in FIG. 8, step 716. If the dynamic tablepointer, (TP) has not reached its limit, the table pointer, TP will bechecked to determine if the value of TP is 1, step 720.

[0120] When the value of the table point, TP, is equal to 1, In step 725is where the straight line depreciation results FMVS, for the firstentry in the table, is calculated by multiplying the individualequipment purchase price, EPP, by the number of units, NU, adding thelease acquisition fees dollar amount, LAF$, to the results andsubtracting the straight line depreciation amount, SLD from its results.The next step, 730 is where the accelerated depreciation results, FMVA,is calculated by multiplying the individual equipment price, EPP, by thenumber of units, NU, and storing the results in the first entry of thedynamic table. Step 735 determines the rate of return by usingcalculated results in the dynamic tables containing the yearly paymentsand the accelerated depreciation results to calculate the rate of returnas follows: the yearly payment, YP(TP) is subtracted from the totalpurchase price, TPP, with the results being subtracted from accelerateddepreciation results, FMVA(TP) and then divided by lease purchase price,LPP. A “1” is then added to the dynamic table pointer, TP, in step 755.Step 755 then branches back to step 710 to perform the comparison again.

[0121] When the value of the table point, TP is greater than 1, step 740is where the straight line depreciation results, FMVS, for the nextentry in the table is calculated by subtracting the straight linedepreciation amount from the previous straight line deprecation results,FMVS(TP−1). The way this is done is using the table pointer, TP, topoint to the next entry and then addressing the previous entry by usinga minus 1. This method allows referencing two elements in the dynamictable at the same time.

[0122] The next step, 745 is where the accelerated depreciation results,FMVA, are calculated. It uses the same two-element reference as done instep 740. It is calculated by subtracting the accelerated depreciationresults, FMVA(TP−1) from the previous accelerated depreciation results,then subtracting the fair market value at end of lease, FMVE, and thenmultiplying the results by the accelerated depreciation percentage ofchange, AD %. Step 750 determines the rate of return by using calculatedresults in the dynamic tables containing the yearly payments and theaccelerated depreciation results to calculate the rate of return asfollows: the yearly payment, YP(TP−1), which is the previous yearlypayment, is subtracted from the total purchase price, TPP with theresults being subtracted from previous accelerated depreciation results,FMVA(TP−1) and divided by the table pointer, TP and then divided bylease purchase price, LPP. A “1” is then added to the dynamic tablepointer, TP, in step 755. Step 755 then branches back to step 710 toperform the comparison again.

[0123] Once the core data is collected, it will be subjected to thecalculations resulting in the rate of return required by the riskmitigation process 350 of FIG. 3 which is shown in detail in FIG. 8 anduses the results to perform the selection process.

[0124] At the end of the selection process illustrated in FIGS. 6 and 7the following calculations will have been performed:

TPP=LPP+LAF$

FMVE=EEPP*NU

REOL=(EEPP*NU)*(100−AD%)

SLD=(TPP−FMVE)/LOL

LAF%=LAF$/(EPP*NU)

ACFY=SUM(YP, 1 to LOL)/LOL/TPP

PPM=YP(1)/12

PPY=YP(1)*12

FMVS(TP)=EPP*NU+LAF$−SLD

FMVA(TP)=EPP*NU

RR(TP)=(YP(TP)−TPP−(FMVA(TP)))/LPP

FMVS(TP)=FMVS(TP−1)−SLD

FMVA(TP)=FMVA(TP−1)−FMVE*AD%

RR(TP)=YP(TP−1)−TPP−FMVA(TP−1)/TP/LPP

RRT=RR(TP)+RRT

RRA=RRT/LOL

[0125]FIG. 8 represents one of the processes mentioned in FIG. 3, riskmitigation, 350. The acquisition selection process represented in FIG.6, which is part of risk mitigation, 350, collects two data elementsthrough data entry by a user agent, 360, and stores them in variables tobe used with the variables collected and calculated in the deal filterprocess, 320. The primary objective of the steps in FIG. 8 is to set uppointers to identify the tables to use from Tables 1-5 below and theexact row and column address to the value stored in the table. Thevalues stored in the tables determine whether a proposed acquisition isaccepted or rejected.

[0126] The TI variable represents the type of financial instrument.There are four types of financial instruments considered, venturecapital, private equity, public equity, and debt instruments. A tablerepresenting each one of these financial instruments is presented below.Contained in these tables is information about level of risk thatdictates whether the acquisition is accepted or rejected based on thecalculated rate of return. This entered variable, TI, identifies whichtable will be used.

[0127] Following are Tables 1-5. Tables 14 contain information relatingto the level of risk and are used to decide whether the acquisitionshould be accepted or rejected based on the calculated rate of returnRR. Table 5 provides a selection criteria based on the length of thelease.

[0128] Table 1—Contains rate of return, investment grade ratings andselection criteria that is used by the collected variables and rate ofreturn formula to determine whether the lease can be used as a tieredderivative for Venture Capital.

[0129] Table 2—Contains rate of return, investment grade ratings andselection criteria that is used by the collected variables and rate ofreturn formula to determine whether the lease can be used as a tieredderivative for Private Equity.

[0130] Table 3—Contains rate of return, investment grade ratings andselection criteria that is used by the collected variables and rate ofreturn formula to determine whether the lease can be used as a tieredderivative for Public Equity.

[0131] Table 4—Contains rate of return, investment grade ratings andselection criteria that is used by the collected variables and rate ofreturn formula to determine whether the lease can be used as a tieredderivative for Debt Instruments.

[0132] Table 5—Contains number of years before the lease is liquidated,and the type of tiered derivative as calculated by length of leaseformula to determine which tiered derivative best fits the selectioncriteria. TABLE 1 Venture Capital Acquisition Table VC = Venture CapitalVenture Capital Investment Grade Rating Rate of Return <BBB BBB -A- -AA-AAA 1.00% No No No No No 2.00% No No No No No 3.00% No No No No No 4.00%No No No No No 5.00% No No No No No 6.00% No No No No No 7.00% No No NoNo No 8.00% No No No No No 9.00% No No No No No 10.00% No No No No No11.00% No No No No No 12.00% No No No No Yes 13.00% No No No Yes Yes14.00% No No Yes Yes Yes 15.00% No Yes Yes Yes Yes 16.00% No Yes Yes YesYes 17.00% No Yes Yes Yes Yes 18.00% No Yes Yes Yes Yes 19.00% No YesYes Yes Yes 20.00% No Yes Yes Yes Yes

[0133] if TI=“Venture Capital” Then Use VC Acquisition Table

[0134] if GI=“<BBB” Then CP is 2

[0135] If GI=“BBB” Then CP is 3

[0136] If GI=“A” Then CP is 4

[0137] If GI=“AA” Then CP is 5

[0138] If GI=“AAA” Then CP is 6

[0139] RP=the value of RR

[0140] If VC Acquisition Table(CP,RP) not=“YES”

[0141] Then Reject Acquisition

[0142] End-if TABLE 2 Private Equity Acquisition Table PE = PrivateEquity Private Equity Investment Grade Rating Rate of Return <BBB BBB-A- -AA- AAA 1.00% No No No No No 2.00% No No No No No 3.00% No No No NoNo 4.00% No No No No No 5.00% No No No No No 6.00% No No No No No 7.00%No No No No No 8.00% No No No No No 9.00% No No No No No 10.00% No No NoNo Yes 11.00% No No No Yes Yes 12.00% No No Yes Yes Yes 13.00% No YesYes Yes Yes 14.00% No Yes Yes Yes Yes 15.00% No Yes Yes Yes Yes 16.00%No Yes Yes Yes Yes 17.00% No Yes Yes Yes Yes 18.00% No Yes Yes Yes Yes19.00% No Yes Yes Yes Yes 20.00% No Yes Yes Yes Yes

[0143] if TI=“Private Equity” Then Use PE Acquisition Table

[0144] if GI=“<BBB” Then CP is 2

[0145] If GI=“BBB” Then CP is 3

[0146] If GI=“A” Then CP is 4

[0147] If GI=“AA” Then CP is 5

[0148] If GI=“AAA” Then CP is 6

[0149] RP=the value of RR

[0150] If PE Acquisition Table(CP,RP) not=“YES”

[0151] Then Reject Acquisition

[0152] End-if TABLE 3 Public Equity Acquisition Table PBE = PublicEquity Public Equity Investment Grade Rating Rate of Return <BBB BBB -A--AA- AAA 1.00% No No No No No 2.00% No No No No No 3.00% No No No No No4.00% No No No No No 5.00% No No No No No 6.00% No No No No No 7.00% NoNo No No No 8.00% No No No No No 9.00% No No No No Yes 10.00% No No NoYes Yes 11.00% No No Yes Yes Yes 12.00% No Yes Yes Yes Yes 13.00% No YesYes Yes Yes 14.00% No Yes Yes Yes Yes 15.00% No Yes Yes Yes Yes 16.00%No Yes Yes Yes Yes 17.00% No Yes Yes Yes Yes 18.00% No Yes Yes Yes Yes19.00% No Yes Yes Yes Yes 20.00% No Yes Yes Yes Yes

[0153] if TI=“Public Equity” Then Use PBE Acquisition Table

[0154] if GI=“<BBB” Then CP is 2

[0155] If GI=“BBB” Then CP is 3

[0156] If GI=“A” Then CP is 4

[0157] If GI=“AA” Then CP is 5

[0158] If GI=“AAA” Then CP is 6

[0159] RP=the value of RR

[0160] If PBE Acquisition Table(CP,RP) not=“YES”

[0161] Then Reject Acquisition

[0162] End-if TABLE 4 Debt Instruments Acquisition Table DI = DebtInstruments Debt Instruments Investment Grade Rating Rate of Return <BBBBBB -A- -AA- AAA 1.00% No No No No No 2.00% No No No No No 3.00% No NoNo No No 4.00% No No No No No 5.00% No No No No No 6.00% No No No No No7.00% No No No No No 8.00% No No No No Yes 9.00% No No No Yes Yes 10.00%No No Yes Yes Yes 11.00% No Yes Yes Yes Yes 12.00% No Yes Yes Yes Yes13.00% No Yes Yes Yes Yes 14.00% No Yes Yes Yes Yes 15.00% No Yes YesYes Yes 16.00% No Yes Yes Yes Yes 17.00% No Yes Yes Yes Yes 18.00% NoYes Yes Yes Yes 19.00% No Yes Yes Yes Yes 20.00% No Yes Yes Yes Yes

[0163] if TI=“Debt Instruments” Then Use DI Acquisition Table

[0164] if GI=“<BBB” Then CP is 2

[0165] If GI=“BBB” Then CP is 3

[0166] If GI=“A” Then CP is 4

[0167] If GI=“AA” Then CP is 5

[0168] If GI=“AAA” Then CP is 6

[0169] RP=the value of RR

[0170] If DI Acquisition Table(CP,RP) not=“YES”

[0171] Then Reject Acquisition

[0172] End-if TABLE 5 Length of Lease Table No. of Years VC PE PBE DI 1No No Yes Yes 2 No No Yes Yes 3 No Yes Yes Yes 4 No Yes Yes Yes 5 YesYes Yes Yes 6 Yes Yes No Yes 7 Yes Yes No Yes 8 Yes Yes No Yes 9 Yes YesNo Yes 10 Yes Yes No Yes

[0173] if TI=“Venture Capital” Then CP is 2

[0174] If TI=“Private Equity” Then CP is 3

[0175] If TI=“Public Equity” Then CP is 4

[0176] If TI=“Debt Instrument” Then CP is 5

[0177] If Length of Lease Table(CP,RP) not=“YES”

[0178] Then Reject Acquisition

[0179] End-if

[0180] The GI variable represents the grade of the investment There arefive grades of investment that are considered. These grades areconsidered credit ratings and are maintained by an external source suchas Dun & Bradstreet. The grades contained in the tables are “<BBB”,“BBB”, “A”, “AA” and “AAA”. This variable is used to point to a columnin each of the previously mentioned financial instrument tables.

[0181] Now turning to FIG. 8 the process for accepting or rejecting anacquisition based on the rate of return is illustrated. The TI variableis entered by the user agent 360 in FIG. 3 and represents the type ofinstrument, step 810. The GI variable is entered by the user agent 360in FIG. 3 and represents the grade of investment, step 820. Logic isapplied based on the entered GI value setting the CP variable, which isa column pointer, to 2, 3, 4, 5, or 6, step 830. Logic is applied basedon the value of the Rate of Return Average, RRA variable, which wascalculated in step 716 in FIG. 7, to set the RP value, which is the rowpointer, step 840. A logic statement will select the proper table fromTables 1-4 based on the value of TI, the type of instrument, step 850,and use the CP, column pointer from step 830 and RP, row pointer fromstep 840 to determine which value to check in the selected table, step860. The logic statement will determine whether the acquisition will berejected, step 870, or accepted, step 880. The deal database, 890, willbe updated with the decision.

[0182]FIG. 9 represents the other process mentioned in FIG. 3, riskmitigation, 350. The check length of lease process represented in FIG.9, which is part of risk mitigation, 350, checks the time left on thelease. This process has all of the data elements necessary to point tothe information in Table 5, length of lease table. Logic is appliedbased on the entered TI value, which is the type of instrument, settingthe CP variable, which is a column pointer, to 2, 3, 4, or 5, step 910.Logic is applied setting the RP variable, row pointer to the LLMvariable, life of lease in months divided by 12, step 920. A logicstatement will select Table 5, length of lease table, and use the CP,column pointer from step 910 and RP, row pointer from step 920 todetermine which value to check in the table 5, step 930. The logicstatement, step 940 will determine whether the acquisition will berejected, step 950 or accepted, step 960. The deal database, 970, willbe updated with the decision.

[0183] Now turn to FIG. 10 for a representation of the selectionoptimization process. Its purpose is to determine whether the defaultvalues (Tables 1-5) will be used to optimize the selection or whether touse the variables entered by the buyer. The method does this byselecting data from the deal database, 1010, which is the same as thedeal database 890 and 970 for buyer-entered variables in step 1015. Step1020 determines if buyer variables exist. If no variables exist, thenthe deal is checked in step 1025 to determine if it was rejected. If thedeal was not rejected, then the default values from Tables 1-5 are usedto generate the deal sheet, in step 1030. If the deal was rejected basedon the default values then the process ends at step 1035.

[0184] If step 1020 determines that there are buyer variables, theoptimization process begins by sorting the lease acquisition selectionby the rate of return results in ascending order, step 1040. This usesthe dynamic table pointer to isolate and sort data items. Once the itemsare sorted, step 1045 selects leases using the buyer input variables ascriteria to the database retrieval language which dynamically constructsstatements that identifies and retrieves a subset of leases meeting thecriteria. Step 1050 determines whether the lease meets the buyer'scriteria, if does not, step 1055 checks to see if the default processrejected the deal. If the deal was not rejected step 1060 generates adeal sheet. If the deal was rejected, then the process ends with step1080.

[0185] If the buyer criteria is meant using the buyer input variables instep 1050, then a deal sheet is created in step 1070. Step 1090 checksto see If other leases apply. If other leases apply, the processbranches to step 1045, otherwise the process is ended in step 1080.

[0186] Thus, it is apparent that in accordance with the presentinvention, a method and an apparatus that fully satisfies theobjectives, aims, and advantages is set forth above. While the inventionhas been described in conjunction with specific embodiments, it isevident that many alternatives, modifications, permutations, andvariations will become apparent to those skilled in the art in light ofthe foregoing description. Accordingly, it is intended that the presentinvention embrace all such alternatives, modifications and variations asfall within the scope of the claims.

We claim:
 1. A method for selecting leases to optimize an investmentportfolio comprising the steps of: receiving data relating to anequipment purchase price, an equipment sale price, a number of units, alease purchase price, a life of lease, a lease acquisition fee, anaccelerated depreciation of change, and a yearly payment; calculating atotal purchase price by adding the lease purchase price to the leaseacquisition fee; calculating an accelerated depreciation result bymultiplying the equipment purchase price by the number of units;calculating a rate of return by subtracting from the yearly payment thetotal purchase price and the accelerated depreciation result anddividing by the lease purchase price; and selecting a lease based on therate of return being greater or equal to a predetermined value.
 2. Themethod according to claim 1, further comprising the steps of calculatinga fair market value at end of lease by multiplying the equipment saleprice by the number of units; calculating a residual at end of lease bysubtracting 100 from the accelerated depreciation of change andmultiplying by the equipment sale price and the number of units; andcalculating a straight line depreciation amount by subtracting the totalpurchase price from the fair market value at end of lease and dividingthe result by the life of lease.
 3. The method according to claim 2,further comprising the step of calculating a straight line depreciationresult by multiplying the equipment purchase price by the number ofunits and adding the lease acquisition fee and subtracting the straightline depreciation amount.
 4. The method according to claim 1, whereinthe predetermined value is dependent on an investment grade rating of atype of instrument.
 5. The method according to claim 4, wherein the typeof instrument is one of venture capital, private equity, public equity,and debt instruments.
 6. The method according to claim 5, furthercomprising the step of selecting the lease based on a length of thelease.
 7. The method according to claim 1, wherein a plurality of leasesare selected to form a two tier investment structure.
 8. The methodaccording to claim 7, wherein the two tier investment structure isapplied to one of a venture capital environment, private equity, publicequity, and debt instruments.
 9. The method according to claim 1,wherein a plurality of leases are selected to create a NASDAQ typetrading exchange.
 10. An apparatus for facilitating a selection ofleases to optimize an investment portfolio, comprising: a storagedevice; a processor connected to the storage device, the storage devicestoring a program for controlling the processor, wherein the processoroperates with the program for receiving data relating to an equipmentpurchase price, an equipment sale price, a number of units, a leasepurchase price, a life of lease, a lease acquisition fee, an accelerateddepreciation of change, and a yearly payment; calculating a totalpurchase price by adding the lease purchase price to the leaseacquisition fee; calculating an accelerated depredation result bymultiplying the individual purchase price by the number of units;calculating a rate of return by subtracting from the yearly payment thetotal purchase price and the accelerated depreciation result anddividing by the lease purchase price; and selecting a lease based on therate of return being greater or equal to a predetermined value.
 11. Theapparatus according to claim 9, wherein the processor further operateswith the program for calculating a fair market value at end of lease bymultiplying the equipment sale price by the number of units; calculatinga residual at end of lease by subtracting 100 from the accelerateddepreciation of change and multiplying by the equipment sale price andthe number of units; and calculating a straight line depreciation amountby subtracting the total purchase price from the fair market value atend of lease and dividing the result by the life of lease.
 12. Theapparatus according to claim 11, wherein the processor further operateswith the program for calculating a straight line depreciation result bymultiplying the equipment purchase price by the number of units andadding the lease acquisition fee and subtracting the straight linedepreciation amount.
 13. The apparatus according to claim 10, whereinthe predetermined value is dependent on an investment grade rating of atype of instrument.
 14. The apparatus according to claim 13, wherein thetype of instrument is one of venture capital, private equity, publicequity, and debt instruments.
 15. The apparatus according to claim 14,wherein the processor further operates with the program for selectingthe lease based on a length of the lease.
 16. The apparatus according toclaim 10, wherein a plurality of leases are selected to form a two tierinvestment structure.
 17. The apparatus according to claim 16, whereinthe two tier investment structure is applied to one of a venture capitalenvironment, private equity, public equity, and debt instruments. 18.The apparatus according to claim 10, wherein a plurality of leases areselected to create a NASDAQ type trading exchange.